30-year mortgages

buying a house
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The average interest rate on a 30-year fixed-rate mortgage — America’s most popular home loan — dropped to 2.95% last week, from an even 3% a week earlier, mortgage giant Freddie Mac reported on Thursday.

Rates are up from January’s all-time low but they’re still among the lowest in history. A year ago, the 30-year fixed was a higher 3.15%, on average.

Today's sub-3% rates are not expected to last as the economy picks up steam and inflation heats up. Mortgage experts have forecast that rates will end 2021 in the mid-to-high 3% range.

Some have even predicted that the 30-year fixed rate could jump above 4% by year-end.

15-year mortgages

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The average rate on a 15-year fixed-rate mortgage dropped to 2.27%, according to Freddie Mac's long-running survey. That’s down from 2.29% the previous week and 2.62% last year at this time.

These shorter-term loans are popular among refinancing homeowners who can afford higher monthly payments or want to cut their lifetime interest costs.

Kim Lanham, senior vice president at mortgage technology company Mphasis Digital Risk, recommends that would-be borrowers keep an eye on the yield (interest rate) on the Treasury's 10-year note, a predictor for the direction mortgage rates will take.

Recent economic news, including a report of weak consumer confidence, pulled Treasury yields down last week.

“The best time to get a fixed-rate home loan is when Treasury yields are low, so rather than watching the rates, borrowers can get a good indication of what is going to happen with rates watching these yields,” Lanham tells MoneyWise.

5/1 adjustable-rate mortgages

The typical rate on a 5/1 adjustable-rate mortgage was unchanged last week at 2.59%, but down from a year ago when the average was 3.13%.

ARMs usually start out with lower rates than their fixed-rate cousins, but after a period of time the rates can "adjust" up or down, depending on the prime rate or some other benchmark.

These loans are called 5/1 ARMs because they're fixed for the first five years and then adjust every (one) year after that.

14M could benefit from a refinance

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With the average 30-year mortgage rate under 3% again, lots of homeowners have the potential to save thousands of dollars and increase their monthly cash flow by refinancing, says Sam Khater, Freddie Mac’s chief economist.

"In fact, homeowners who refinanced their 30-year fixed-rate mortgage in 2020 saved more than $2,800 dollars annually," Khater says.

An estimated 14.1 U.S. mortgage holders now have the ability to save an average $287 a month by refinancing, the mortgage technology and data provider Black Knight said on Thursday. Roughly 1.7 million could save over $500 monthly through a refi.

You're a good candidate for a refinance if you’ve built up at least 20% equity in your home and could shave at least three quarters of a percentage point (0.75) off your existing interest rate with a new 30-year mortgage, Black Knight says.

It also helps to have a credit score of 720 or better. If you haven’t checked yours in a while, it’s easy to get a peek at your credit score for free.

How to track down the lowest mortgage rate

buying a house
@andreyyalansky19 via Twenty20

Low mortgage rates also are benefiting homebuyers as they deal with skyrocketing home prices. Cheap mortgages have allowed borrowers to afford more expensive houses.

“Buyers who purchased a home in the past year and locked in record-low rates will benefit from predictable monthly payments as a hedge against inflation concerns,” says George Ratiu, senior economist with Realtor.com.

If you're determined to find the lowest mortgage rate possible, studies from Freddie Mac and others have shown that comparing mortgage offers from at least five lenders can result in significant savings.

While you're comparison shopping, also look around for the best rate on homeowners insurance, because you might easily be overpaying.

And remember that when you apply for a mortgage, lenders will want to see a solid track record of on-time payments for all your debts. If you have multiple high-interest loans, consider rolling them into a single, lower-interest debt consolidation loan to pay off your balances more quickly and affordably.

About the Author

Nancy Sarnoff

Nancy Sarnoff

Senior Reporter/Editor

Nancy Sarnoff is a senior reporter and editor at MoneyWise. Previously, she covered commercial and residential real estate for the Houston Chronicle where she also hosted Looped In, a podcast about the region’s growth, development and economy. Her work has been recognized by the National Association of Real Estate Editors and the Society of American Business Editors and Writers.

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